Making Tax Digital – An Overview for SMEs

Submitted by admin on Thu, 29/09/2016 - 09:06

As a business owner you may be aware that the HMRC (Her Majesty’s Revenue and Customs) is planning to digitise the UK’s tax system which will change the relationship between businesses and HMRC. The 2015 Budget saw the government set out a vision for a transformed tax system and the Making Tax Digital (MTD) Roadmap was launched in December 2015, outlining what the tax system should look like by the year 2020. The government has published six consultation documents, each of which focuses on specific customer groups or elements of the reforms:

An overview for small businesses, the self-employed and smaller landlords

Bringing business tax into the digital age

Simplifying tax for unincorporated businesses

Simplified cash basis for unincorporated property businesses

Voluntary pay as you go

Tax administration

One of the biggest changes that will come with MTD is that businesses will regularly update HMRC on their finances via quarterly updates delivered via accounting software – a development which aims to give businesses a real time view of their tax liability. The very concept of making tax digital means that software will play a key role in the future and HMRC intends that the new system of record keeping will depend upon data sent to the taxman via the “push of a button”.

The major challenge to the government’s plan is that there is a large section of British taxpayers who do not currently use software, but are still using traditional, paper-based systems. HMRC will offer exemptions for unincorporated businesses and landlords with a turnover of less than £10,000 per annum and a year’s grace to other small businesses (although the threshold for this has not yet been set).

In order to address the concerns of small businesses that do not use accounting software, HMRC has promised to provide free apps (which will be provided by the market) that can be used for quarterly reporting. The government has also promised to provide financial support to help some businesses make the transition to MTD after consultation on the type of support required and what form it should take.

Small to medium business owners are advised to take a good look at all of the information available on the government’s website and get involved in the consultation process in order to familiarise themselves with the coming changes and the impact they are likely to have on business activities. This is a radical change to the way in which the tax system is administered and making sure you’re up to date with these developments is a great way to ensure that your business is ready for the changes and that you’re able to adopt the new system will be vital for the future of your business. Making sure that you have the insights necessary to update your accounting process will enable you to bring your business into the digital age and give you the confidence that your business will prosper in the coming few years despite the changes you face.

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